The meeting reviewed the current economic situation and credit flows to different sectors of the economy, including liquidity to NBFCs, micro finance institutions, housing finance companies and mutual funds, the RBI said.

The RBI review, called by Governor Shaktikanta Das, has come at a time when non-food credit has plummeted by Rs 33,872 crore to Rs 102.8 lakh crore during the fortnight ended April 10. (File)

The Reserve Bank of India (RBI) on Saturday took up the issue of improving credit flow to various sectors of the economy, including non-banking financial companies (NBFCs) and micro, small and medium enterprises (MSMEs) with the chiefs of major private and public sector banks. However, banks said they were looking for a credit guarantee support from the government, while extending loans to NBFCs and also proposed that a decision on extending the three-month moratorium on loan repayments can be taken at the end of May.

The RBI review, called by Governor Shaktikanta Das, has come at a time when non-food credit has plummeted by Rs 33,872 crore to Rs 102.8 lakh crore during the fortnight ended April 10 and the government extended the lockdown by another two weeks to May 17.

The meeting reviewed the current economic situation and credit flows to different sectors of the economy, including liquidity to NBFCs, micro finance institutions, housing finance companies and mutual funds, the RBI said. The meeting, conducted through video conference, also took up post-lockdown credit flows including provision of working capital, with special focus on credit flows to MSMEs and implementation of three months’ moratorium on repayment of loan instalments announced by the RBI.

Explained

Banks want govt guarantee

With many sectors in the doldrums due to the lockdown, banks are expecting bad loans to rise after June when the moratorium period ends. The extension of moratorium and a government guarantee scheme will give more comfort to the banks which have turned risk averse now.

While banks had extended the loan moratorium to their customers, they have not extended the same facility to NBFCs and MFIs, which borrow from banks. On extending government guarantees to loans to MSMEs and NBFCs, the CEO of a nationalised bank said, “In many countries, the government stepped in and they are giving guarantees particularly for the loans or the incremental credit even to the MSME sector.” This means the liability will be contingent in the books of the government and banks can leverage those guarantees. Banks say it can be a good model to help out borrowers, particularly MSMEs, it’s not clear whether the government is keen on such a proposal.

On the poor credit flow to various sectors, a bank official said, “Unless the economic activity picks up, the demand for credit isn’t likely to pick up and the lack of credit growth is not in my view currently because of any risk aversion.” Though many PSU banks have come out with Covid-19 loan schemes for MSMEs, credit flow has not picked up to the desired levels. The RBI has conducted long-term repo operations (LTRO) for banks at the repo rate of 4.40 per cent, but banks are preferring better rated corporates while ignoring the claims of small units and NBFCs. On extending the moratorium beyond May 31, he said, “Let’s wait till May 31 and then see that what is the demand or what is the situation and depending upon the situation on the ground, I think these are the things which the RBI can take a view and take a calibrated approach. I think the next view probably will be taken after May 31.”

As per the RBI, the Governor “appreciated the efforts of banks in ensuring normal to near normal” operations during the lockdown … Monitoring of overseas branches of banks in view of the slowdown in economies across the globe and stability of the financial sector were discussed.